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  • 2024-08-05
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Looming Fiscal Crisis: US Debt Bubble May Trigger Reckoning, Warns Budget Committee Chair

How large does the U.S. debt scale need to be to be considered excessive? Even the chair of the Committee for a Responsible Federal Budget, Maya MacGuineas, has stated that she is "unsure."

On Wednesday, MacGuineas warned at a discussion hosted by the Institute of International Finance that the U.S. fiscal situation is "structurally unsound," with debt growing at a rate much faster than economic growth.

MacGuineas said that many in the financial markets compare the U.S. fiscal situation to a bubble. As long as the bubble persists, investors will be eager to profit from it. However, no one can give a definite answer as to when the bubble will burst.

"Speculating before a fiscal crisis breaks out is very dangerous. If the Treasury auction fails, the market reaction will be very rapid."

Political uncertainty intensifies, and the election may expand the debt scale.

As the U.S. debt scale continues to expand, Wall Street has begun to take notice of the potential fiscal crisis in the United States. Earlier this week, legendary investor Paul Tudor Jones also expressed his concern that the surge in U.S. debt could trigger a reckoning.

MacGuineas said that even without the threat of a crisis, the level of U.S. debt is harming the economy and suppressing growth. She opposes the large federal deficit.

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The International Monetary Fund (IMF), in its latest report released on Wednesday, believes that the United States needs to adjust its spending and borrowing to control public debt. Victor Gaspar, Director of the Fiscal Affairs Department of the IMF, said:"The U.S. government can use a variety of policy tools to control the trajectory of public debt," believes Raghuram Rajan, the former governor of the Reserve Bank of India and current professor of finance at the University of Chicago Booth School of Business.

"As a result, government spending increases while fiscal revenue decreases."

MacGuineas also believes that the current political situation regarding the fiscal sustainability of the United States is "very bad."

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